Global Net Lease's Dividend Cut Is Not a Harbinger of Things to Come

Real estate investment trust (REIT) Global Net Lease (NYSE: GNL) cut its dividend by 25% in late March. That's obviously not good news for investors. Interestingly, though, Wall Street continues to be a little leery of the REIT's dividend, with the stock still offering a double-digit yield when peers are in the mid-single digits. The truth is, there are problems in the net lease space today as the entire sector deals with the impact of the COVID-19 pandemic.

But Global Net Lease isn't likely to end up being the poster child for a troubled industry. It's really the exception.

Global Net Lease's name is pretty descriptive. It owns net-lease assets, which means its lessees are responsible for most of the operating costs of the properties they occupy. Generally, this is a pretty conservative business approach for a real estate investment trust, which can just sit back and collect rent (a bit of an oversimplification, but you get the idea). The REIT basically makes the difference between its financing costs and the rents it charges. As long as the company buys decent assets at reasonable prices and is careful with the leverage it takes on, it should be a boring income investment. Look no further than industry bellwethers like Realty Income (NYSE: O) and National Retail Properties (NYSE: NNN) as evidence: The pair have increased their dividends annually for 27 years and 30 years, respectively. Realty Income's dividend yield is roughly 5.5% today, with National Retail's sitting at about 7.4% (both are high by historical standards because of COVID-19 related concerns).